Who Should Have a TFSA?

Written by:  Gwyneth James MBA CPA, CGA

The Tax Free Saving Account (TFSA) has been around now for ten years and is pretty popular with good reason – everyone should have one.

There is no tax deduction for contributions to a TFSA. The ‘tax free’ relates to any investment earned by the TFSA. It is tax free even when withdrawn.

For people just entering the workforce the TFSA is the ideal place for your emergency fund. Even $100 a month will provide a nice $2400 emergency fund within two years and get you in to the habit of saving. Then when an emergency happens (like the furnace conks out or the car transmission goes – not the emergency trip to Casino Rama or the 30% off shoe sale) you have the funds to cover it and the $100 a month starts to rebuild it right away.

The TFSA is also the place for everyone to save for those big purchases like new furniture, a vacation or home renovation. Again move money into your TFSA monthly and save for that big purchase.

If you are fortunate enough to have no debt and have maximized your RRSPs then the TFSA can be used to accumulate additional savings for retirement.

If you are retired and have any taxable investment income those funds should be inside a TFSA to reduce the tax bite.

However, be mindful of the maximum contribution limits. The CRA establishes contribution limits each year and they vary each year. It must be clear that no matter how many TFSA’s you have, the contribution limit applies to the combined total of all TFSA’s held by an individual and there are penalties if you exceed your contribution limit.

If you do not have a TFSA, you should – and start using it. If you do have one, good! Now make sure it is put to the best use!